Question

In: Accounting

Assets Cash                                        &nb

Assets

Cash                                                                                           $500,000

Accounts Receivable                                                                  700,000                             

Inventory                                                                                     300,000

Property, Plant & Equipment                          900,000

Accumulated Depreciation                          (100,000)              800,000

Total Assets                                                                            $2,300,000

Liabilities & Equity

Accounts Payable                                                                      $300,000

Notes Payable                                                                           1,000,000

Common Stock                                                                            500,000

Retained Earnings                                                                       500,000

Total Liabilities & Equity                                                      $2,300,000

Journal Entries for January 2013

Transaction 1: Services Provided for Cash

Description: Receives $155,000 cash from customers for programming services it has provided.

Journal Entry:                                                                                                          Dr.                              Cr.

Cash                                                                                                                      155,000

            Sales                                                                                                                                              155,000  

Transaction 2: Receipt of Cash on Account

Description: Receives $28,000 in cash from customers who had been billed for services.

Journal Entry:                                                                                                           Dr.                              Cr.

Cash                                                                                                                          28,000                           

          Accounts Receivable                                                                                                                            28,000
          

Transaction 3: Cost Flow Assumption: LIFO

Description: Recorded $45,000 in cost of goods sold under the LIFO cost flow assumption.

Journal Entry:                                                                                                         Dr.                               Cr.

Cost of Goods Sold                                                                                                   45,000

                  Inventory                                                                                                                                    45,000

Transaction 4: Recording Depreciation Expense

Description: Recorded depreciation expense under the straight-line method.

Journal Entry:                                                                                                          Dr.                               Cr.

Depreciation Expense                                                                                               9,000

                  Accumulated Depreciation                                                                                                           9,000

Transaction 5: Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was equal to the book value.

Journal Entry:                                                                                                    Dr.                                    Cr.

Cash                                                                                                                      3,000

Accumulated Depreciation                                                                                  16,000

                  Equipment                                                                                                                                    19,000

Transaction 6: Gain on Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was $2,000 more than the book value resulting in a gain.

Journal Entry:                                                                                                        Dr.                                   Cr.

Cash                                                                                                                      5,000

Accumulated Depreciation                                                                                  16,000

                  Gain                                                                                                                                               2,000

                  Equipment                                                                                                                                      19,000

Transaction 7: Loss on Sale of Plant Asset

Description: Sale of plant asset for cash. The cash received was $500 less than the book value resulting in a loss.

Journal Entry:                                                                                                        Dr.                                   Cr.

Cash                                                                                                                         2,500

Loss                                                                                                                            500

Accumulated Depreciation                                                                                   13,000

                  Equipment                                                                                                                                     16,000

Transaction 8: Note Given to Borrow from Bank

Description: Borrowed $2,000 cash with a 60-day, 12%, $2,000 note.

Journal Entry:                                                                                                        Dr.                                    Cr.

Cash                                                                                                                      2,000

                  Notes Payable                                                                                                                                  2,000

Transaction 9: Payment of Note

Description: Paid the principal and interest on the note in Transaction 8.

Journal Entry:                                                                                                        Dr.                                      Cr.

Notes Payable                                                                                                      2,000

Interest Expense                                                                                                        40

                  Cash                                                                                                                                                2,040

Transaction 10: Bond Issue

Description: Issued a $100,000 Par Value Bond at a Discount

Journal Entry:                                                                                                         Dr.                                     Cr.

Cash                                                                                                                     96,454

                  Bonds Payable                                                                                                                                   96,454

Transaction 11: Effective Interest Amortization

Description: Recorded bond interest expense under the effective interest method.

Journal Entry:                                                                                                           Dr.                                      Cr.

Bond Interest Expense                                                                                           4,823

                  Bonds Payable                                                                                                                                     823

                  Cash                                                                                                                                                    4,000

Transaction 12: Issuing Par Value Stock at a Premium

Description: Issued common stock and received cash of $50,000 in excess of par value.

Journal Entry:                                                                                                            Dr.                         Cr.

Cash                                                                                                                       350,000

                  Common Stock , $10 Par Value                                                                                           300,000

                  Paid-in Capital in Excess of Par Value, Common Stock                                                       50,000

Transaction 13: Dividend

Description: The corporation pays a dividend of $3,800 in cash to the stockholders of Softbyte.

Journal Entry:                                                                                                             Dr.                            Cr.

Dividends                                                                                                                    3,800

            Cash                                                                                                                                                  3,800

The following information is used to answer question 13 to 16:

Bonds: $3,000,000 Par Value
Semiannual Interest Payments
Three-Year Life

Annual Contract Rate: 12%
Annual Market Rate: 10%

13. What is the price of the bond?

A. $3,152,270.76

B. $3,187,305.54

C. $3,215,852.37

D. $3,330,744.36

14. What is the amount of the bond premium?

A. $330,744.36

B. $187,305.54

C. $152,270.76

D. $215,852.37

15. What is the semi-annual cash payment to the bondholder?

A. $150,000

B. $160,000

C. $170,000

D. $180,000

16. What is the total amount of interest expense over the life of the bond?

A. $927,729.24

B. $945,756.32

C. $955,798.51

D. $963,877.98

Solutions

Expert Solution

  • The first part of questions are journal entries and completely solved.
  • I have assisted in providing the answers to Bond problem from Q13 to Q16
  • Working for Bonds Issued

Period Ending

Semi Annual cash payments [3000000 x 6%] (A)

Interest expense [B = C x 5%]

Bond premium amortised (C=A - B)

Carrying Value of Bond (D=D-C)

$       1,52,270.76 [Answer 14]

$   31,52,270.76 [Answer 13]

1

$    1,80,000.00 [Answer 15]

$        1,57,613.54

$           22,386.46

$   31,29,884.30

2

$    1,80,000.00

$        1,56,494.21

$           23,505.79

$   31,06,378.51

3

$    1,80,000.00

$        1,55,318.93

$           24,681.07

$   30,81,697.44

4

$    1,80,000.00

$        1,54,084.87

$           25,915.13

$   30,55,782.31

5

$    1,80,000.00

$        1,52,789.12

$           27,210.88

$   30,28,571.43

6

$    1,80,000.00

$        1,51,428.57

$           28,571.43

$   30,00,000.00

TOTAL Interest expense

$        9,27,729.24 [Answer 16]

  • Answer 13: Option A

The price of the bond is $3,152,270.76 because as shown in above amortisation schedule, this price will lead to $3,000,000 par value after 3 years of its life.

  • Answer 14: Option C

Price of Bond – Par Value of bond = 3152270.76 – 3000000 = $152,270.76

  • Answer 15: Option D

$3,000,000 x 12% x 6months/12 months] = $180,000

  • Answer 16: Option A

As calculated in the table as total interest expense $927,729.24

ekkarill92 answered 1 year ago
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